Health Impact Bonds

About a month ago I wrote a post about social impact bonds. That post provided a primer; briefly, social impact bonds allow non-profits to obtain funding from private sector markets for new programs. If they are successful in reducing expenses, the bonds will provide for a return to investors. (NB - I know this is a simple description of a complex process. I listed some of the many conditions that must be in place for social impact bonds to work in the previous post. And I include them again at the bottom of this post.)

I received some email about the post, and have done a little more research, and have found several groups that are making efforts to use the same kind of financing arrangement for health care, in this country and in the UK. One approach, that taken by the Young Foundation in the UK, is to develop Health Impact Bonds to support particular health care interventions.

Collective Health, an effort to improve community conditions by using health impact bonds and other innovative financing methods, takes another approach. It focuses on prevention:

To reduce the growth rate of chronic health conditions we must look at the context and quality of life that individuals experience: availability and choices of food; social networks and support systems; cultural influences and physical environments of our homes, workplaces, schools and neighborhoods. Growing evidence suggests that we must invest in these and other “upstream” sources of health—often referred to as the social determinants of health—to improve outcomes and reduce costs in a sustainable way.

This is a different way of thinking about preventive care. As the Collective Health white paper points out, health care is large sector of US economy, employing some 12% of American workers. The number of workers and the large budget for health care - $2.6 trillion - makes it hard to think outside of medical model.

Collective Health would like to see development of Health Capital Markets, alternative investments that will allow capital to flow from impact investors and other sources into new markets, such as Health Impact Bonds as well as alternative financing mechanisms. You can read more about the approach on Collective Health's website, particularly its example of using Health Impact Bonds to reduce asthma hospitalizations in Fresno, California, available here.

As promised, here is a list of features that must all be in place for an impact investment to succeed. (this time I quote Collective Health):

• Target outcomes must be clearly defined and achievable;

• The proposed intervention should reflect best practices;

• Measuring outcomes must be independently validated;

• A clearly defined “savings” or return value should be established; and

• Public agencies, nonprofits, investors and community stakeholders must all be willing to work together.